Today marks just over a month since Donald Trump was elected as the next President of the United States. As each cabinet appointment is announced, we get more clues to help us predict which direction the Trump Administration's policies are likely to head. While reality may end up being different from any predictions, it is important for business leaders and managers to be aware of certain key issues that could impact their bottom line and the way they do business in 2017.
Following is a list of some of the most important policy issues to keep an eye on:
Access to Capital and Capital Markets
By Andrew J. Sherman
Both business leaders and the capital markets who invest in their enterprises typically require some predictability of economic conditions before committing to growth and expansion. Under a Trump Administration, we expect to see a pro-business ecosystem driven by tax reform, healthcare reform, and de-regulation which should have a positive impact on the capital markets and overall access to both debt and equity capital.
From a debt perspective, access to the low-interest rate loans of the past five (5) years have been limited to primarily large companies with strong balance sheets. Small to medium-sized companies have turned to FinTech and alternative lenders as well as peer-to-peer platforms to borrow. If there is a partial repeal or reform of the burdens of Dodd-Frank, mid-sized and larger banks should be liberated and motivated to commit to smaller company lending, in addition to continued growth in on-line lending and peer-to-peer marketplaces.
From an equity perspective, tax reform and a pro-entrepreneurship Administration should create an increase in solo angel and angel group investments. We have also seen an uptick in family business office (FBO) direct investment, which should continue to grow and flourish over the next five years, including an increase in "impact investing" designed to foster social objectives.
Venture capital and private equity driven transactions have been relatively flat over the past two years and should remain stable in a Trump Administration, depending in part on the specifics of tax reform and stock market cycles. Sovereign funds, which have been a consistent driver of capital over the last several years, may scale back if they perceive too much social and political populism and/or overly-restrictive immigration reform.
Access to the public markets and to raising capital via initial public offerings (IPO's) may pullback slightly in the tech sector (until the next round of fairly-priced unicorns are identified), but look for offerings in 2017 and 2018 in the healthcare, energy, and infrastructure industries if pre-election policies are put in place in the next six to twelve months. It remains unclear if the Trump Administration will consider any changes to the JOBS Act or support a pullback in aggressive securities law enforcement against public companies.
Overall, innovation, productivity and pro-business growth conditions should be in place to allow companies to build efficient and profitable business plans and models that the capital markets should be in anxious to fuel.
By Steven R. Meier
The gridlock that has marked the past six years of federal tax policy is about to end. Although dissimilar in many ways, the tax plans proposed by President-elect Trump and the House GOP overlap in meaningful areas. Because the GOP does not have 60 votes in the U.S. Senate, reconciliation rules would apply to any tax reform that results in a net loss of tax revenue. Nevertheless, in the next six to twelve months, we may see some of the most dramatic changes in tax law since the Tax Reform Act of 1986.
Among the key areas of potential change of particular interest to businesses are the following:
Lowering Tax Rates, but Eliminating Tax Benefits. Both President-elect Trump and the House GOP propose to consolidate tax rates into fewer brackets, to cap the highest tax rates well below current rates (ordinary income taxed at 33% for individuals, 15% to 20% for corporations), and to eliminate the individual and corporate alternative minimum tax and the surtaxes imposed to support the Affordable Care Act. These tax reductions will not, however, come without a cost. Both President-elect Trump and the House GOP would eliminate most deductions other than the deductions for home mortgage interest and charitable contributions, and most business credits other than the R&D (research and development) credit. In other words, although tax rates will be lowered, the net effect of those lowered rates will ultimately depend upon the impact of eliminated deductions and credits.
Resetting America's Place in the (Tax) World. Over the past several years, many tax reform advocates have argued that America's "worldwide" tax system, combined with its high nominal tax rates, have made the business environment in the U.S. increasingly noncompetitive as compared to other developed nations. Under current tax law, U.S. citizens and businesses are taxed on all income earned anywhere in the world, but are provided exceptions for certain business income of foreign corporate subsidiaries, and are given credits for foreign taxes paid. Because of this complex system, multinational tax planners have long advised their clients to minimize their business footprint in the U.S.. A well-publicized symptom of the purported ill health of the U.S. tax system has been the wave of major "corporate inversions" (shifting U.S. multinationals' place of incorporation outside of the United States), which both major party candidates have criticized and which the current administration has battled through increasingly stringent tax regulations. Another symptom is that U.S. multinationals are reluctant to repatriate the untaxed business income of their foreign corporate subsidiaries. The Joint Committee on Taxation currently estimates...